What is the BEPS project and how does it affect the Principality of Andorra?
Senior tax consultant of Augé Grup, Albert Barroso and Director of Augé Grup’s Legal Department Joan Miró answer:
“With regard to international tax, BEPS (from “Base Erosion and Profit Shifting”) is the term that describes the strategies for tax planning used by multinational companies to take advantage of the discrepancies and inconsistencies between the national tax systems and transfer their benefits towards countries with low or nil taxation, where the companies carry out little or no economic activity, and thus obtain a lower overall burden of taxation for their business activity.
At this juncture, the Organisation for Economic Co-operation and Develeopment (OECD) presented in 1995 a report called “Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations”, which provides guidance on the application of the “arm’s length principle” in the relationship between associated or linked enterprises. The aforementioned report has been updated over time in order to adjust it to new global market rules and international taxation, which is in constant development.
The BEPS action plan, developed by the OECD, and accepted by the G-20, was submitted in 2013 in order to diagnose the main problems related to the BEPS, as well as introducing a plan of 15 actions to fight harmful tax practices among multinational companies.
Andorra is one of the signatory countries within the inclusive framework of the BEPS Plan and thus, it is acknowledged and accepted by the Andorran tax institutions as a guide to gradually update the tax regulation of the country and adjust it to the new international context.
The aforementioned BEPS Plan has the ambition to be a dynamic plan in constant development, since the local authorities have to face the new models of deceptive acts regarding international taxation, year after year.
Within the BEPS plan, actions 8, 9 and 10 are worth highlighting. They are assembled into a single volume entitled “Aligning Transfer Pricing Outcomes with Value Creation”, which are based the establishment of current guidelines to analyze and set reasonable economic relationships between associated entities or from within the same group, in particular two key aspects:
– Transfer prices relating to commercial transactions between entities within the group;
– Criteria for the return of general costs borne by the head company but merited by a subsidiary company.
Considering that Andorra takes part in the BEPS inclusive framework, and that the Andorran legislation still doesn’t develop exhaustively the provisions of the Plan nowadays, it should be understood that the Andorran tax administration should base itself on these guidelines provided by the OECD in order to analyze if, for example, a transfer price or a criteria regarding distribution of costs is reasonable and valid within the BEPS framework. The use of these OECD guidelines is usual especially given of the little normative development of these provisions in national laws”.